Firms, Contracts, and Financial Structure

Paperback | July 1, 1988

byOliver Hart

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This book provides a framework for thinking about economic instiutions such as firms. The basic idea is that institutions arise in situations where people write incomplete contracts and where the allocation of power or control is therefore important. Power and control are not standardconcepts in economic theory. The book begins by pointing out that traditional approaches cannot explain on the one hand why all transactions do not take place in one huge firm and on the other hand why firms matter at all. An incomplete contracting or property rights approach is then developed. Itis argued that this approach can throw light on the boundaries of firms and on the meaning of asset ownership. In the remainder of the book, incomplete contacting ideas are applied to understand firms' financial decisions, in particular, the nature of debt and equity (why equity has votes andcreditors have foreclosure rights); the capital structure decisions of public companies; optimal bankruptcy procedure; and the allocation of voting rights across a company's shares. The book is written in a fairly non-technical style and includes many examples. It is aimed at advanced undergraduateand graduate students, academic and business economists, and lawyers as well as those with an interest in corporate finance, privatization and regulation, and transitional issues in Eastern Europe, the former Soviet Union, and China. Little background knowledge is required, since the concepts aredeveloped as the book progresses and the existing literature is fully reviewed.

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From Our Editors

This book provides a framework for thinking about economic institutions such as firms. The basic idea is that institutions arise in situations where people write incomplete contracts and where the allocation of power or control is therefore important. Power and control are not standard concepts in economic theory. The book begins by po...

From the Publisher

This book provides a framework for thinking about economic instiutions such as firms. The basic idea is that institutions arise in situations where people write incomplete contracts and where the allocation of power or control is therefore important. Power and control are not standardconcepts in economic theory. The book begins by poi...

From the Jacket

This book provides a framework for thinking about economic institutions such as firms. The basic idea is that institutions arise in situations where people write incomplete contracts and where the allocation of power or control is therefore important. Power and control are not standard concepts in economic theory. The book begins by po...

Oliver Hart has written for the Wall Street Journal and the Financial Times as well as contributing to numerous refereed journals. He is currently a member of the Econometric Society and has taught at Harvard, the LSE, MIT, Exeter and Cambridge Universities among others.

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Format:PaperbackDimensions:240 pages, 8.5 × 5.43 × 0.55 inPublished:July 1, 1988Publisher:Oxford University Press

The following ISBNs are associated with this title:

ISBN - 10:0198288816

ISBN - 13:9780198288817

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From Our Editors

This book provides a framework for thinking about economic institutions such as firms. The basic idea is that institutions arise in situations where people write incomplete contracts and where the allocation of power or control is therefore important. Power and control are not standard concepts in economic theory. The book begins by pointing out that traditional approaches cannot explain on the one hand why all transactions do not take place in one huge firm and on the other hand why firms matter at all. An incomplete contracting or property rights approach is then developed. It is argued that this approach can throw light on the boundaries of firms and on the meaning of asset ownership. In the remainder of the book, incomplete contracting ideas are applied to understand firms' financial decisions, in particular, the nature of debt and equity (why equity has votes and creditors have foreclosure rights); the capital structure decisions of public companies; bankruptcy procedure; and the allocation of voting rights across a company's shares. The book is written in a

Editorial Reviews

`Essential reading for any economics or finance Ph.D. student interested in corporate finance ... provides an excellent exposition of the incomplete contracts approach to the theory of the firm ... it is a fine survey of the author's contributions to the theory of firm boundaries and financialstructure. As such, I commend it highly.'Review of Financial Studies